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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Aarav Ltd. takes over Bharat Ltd. and fixes the purchase consideration at ₹14,40,000. It is settled by paying ₹1,20,000 in cash and the balance by issuing fully paid equity shares of ₹10 each at an issue price of ₹12 per share. What amount will be credited to Securities Premium in the books of Aarav Ltd. on this issue?

Securities premium credited is ₹2,20,000. The cash of ₹1,20,000 is deducted first, leaving ₹13,20,000 payable in shares, which at ₹12 per share means 1,10,000 shares. Premium of ₹2 per share on these shares gives ₹2,20,000.

  1. A₹2,40,000
  2. B₹1,32,000
  3. C₹3,40,000
  4. D₹2,20,000Correct

Explanation

Consideration in shares = 14,40,000 − 1,20,000 = ₹13,20,000. Number of shares = 13,20,000 / 12 = 1,10,000. Premium = 1,10,000 × ₹2 = ₹2,20,000. Using the whole consideration (1,20,000 shares) wrongly gives ₹2,40,000.

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